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Most Read: Toshiba Corp, Adani Transmission Ltd, Redbubble Ltd, Kasikornbank PCL, Thai Beverage and more

By | Daily Briefs, Most Read

In today’s briefing:

  • How Much of Toshiba Is Owned By “Activists”?
  • MSCI May 2021 Index Rebalance Preview: Let The Games Begin
  • ASX200 Index Rebalance: Redbubble to Replace Coca Cola Amatil; More Changes in June
  • Index Rebalance & ETF Flow Recap: GPFG, KBANK, CSI300, Adani, NIFTY50, Taiwan50, ASX200
  • ThaiBev BeerCo’s Deferred IPO -Beer Comparison – Sober Up

How Much of Toshiba Is Owned By “Activists”?

By Travis Lundy

This should be considered a Big Question in terms of the Power Dynamics of Shareholders vs Management in the last EGM and the upcoming AGM.

It is difficult to know exactly.

It may also be difficult to define.

It is important to note that the Record Date of the recent EGM was 1 February and in the month after that, nearly 10% of shares out will have changed hands from one type of investor to another. 

It is also important to note that Toshiba directors, if they had chosen to know, could have known a few days into April (before the 6 April CVC approach) with some degree of clarity what the shape of the shareholder base looked like as of 31 March. Most of the rest of us have to wait until the yuho is released near end-June. 

This insight takes a look at the Shareholder Structure as of a point in time when we knew it, and compares it to the rest of MSCI Japan and TOPIX. Then we look at what MIGHT HAVE HAPPENED because of recent float ownership changes and whether that changes anything.


MSCI May 2021 Index Rebalance Preview: Let The Games Begin

By Brian Freitas

The MSCI May Semi Annual Index Review (SAIR) will use the price cutoff data from any of the trading days from 19-30 April to determine the list of stocks to be included into/ excluded from the indices.

MSCI is scheduled to announce the results of the May 2021 SAIR on 11 May with the changes implemented after the close of trading on 28 May.

Stocks that are expected to have the largest impact (in terms of ADV) from passive buying are Perennial Energy Holdings Ltd (2798 HK), Lucky Cement (LUCK PA), Tower Bersama Infrastructure (TBIG IJ), Chow Tai Fook Jewellery (1929 HK), Adani Transmission Ltd (ADANIT IN), Chindata Group Holdings-Adr (CD US), Domino’S Pizza Enterprises Ltd (DMP AU), Reece Ltd (REH AU), Powerlong Real Estate Holdings (1238 HK), China Resources Mixc Lifestyle Services (1209 HK), Sany Heavy Equipment Intl (631 HK), SITC International (1308 HK), I-Mab (IMAB US), InnoCare Pharma Ltd (9969 HK), Cholamandalam Investment and Finance (CIFC IN), Shimao Services Holdings Limited (873 HK), Sunac Services Holdings (1516 HK) and Adani Gas Ltd (ADGAS IN).

Stocks that are expected to have the largest impact (in terms of ADV) from passive selling are Kasikornbank PCL (KBANK/F TB), Aboitiz Power (AP PM), Gamuda Bhd (GAM MK), Genting Plantations (GENP MK), Oil & Gas Development (OGDC PA), Samsung Card Co (029780 KS), Puregold Price Club (PGOLD PM), Keihan Electric Railway Co (9045 JP), Ottogi Corporation (007310 KS), Highwealth Construction (2542 TT), Suzuken Co Ltd (9987 JP), TPG Telecom Ltd (TPG AU), PCCW Ltd (8 HK), AMP Ltd (AMP AU), Keikyu Corp (9006 JP), Perusahaan Gas Negara Perser (PGAS IJ), Yamazaki Baking (2212 JP), Air Water Inc (4088 JP), Tokyu Fudosan Holdings (3289 JP), Hyundai Marine & Fire Insurance Co., (001450 KS) and Sega Sammy Holdings (6460 JP).

New listings that did not make the cut for Fast Entry inclusion and could now be included in the index are China Resources Mixc Lifestyle Services (1209 HK), Sunac Services Holdings (1516 HK), Shimao Services Holdings Limited (873 HK), SCG Packaging Public Company Limited (SCGP TB), HYBE (352820 KS) and Kakao Games Corp (293490 KS). Some of these stocks will also be included in the FTSE All-World index at the June QIR.

The May SAIR will also see the start of the tranched inclusion of Sea Ltd (SE US), a possible switch in listing from Alibaba Group (BABA US) to Alibaba Group (9988 HK), a possible halving in the weight of Kasikornbank PCL (KBANK-R TB), the introduction of the ‘light’ rebalancing scenario in case of market stress, and the introduction of the ‘extreme price moves’ scenario for the inclusion of stocks in the Standard index.


ASX200 Index Rebalance: Redbubble to Replace Coca Cola Amatil; More Changes in June

By Brian Freitas

Post market close on 16 April, S&P Dow Jones Indices announced that Redbubble Ltd (RBL AU) would replace Coca Cola Amatil (CCL AU) in the S&P/ASX 200 (AS51 INDEX) following the shareholders of Amatil voting in favour of the Scheme of Arrangement pursuant to which all the shares held by independent shareholders would be acquired by Coca-Cola European Partners (CCEP US). The index change is subject to final court approval of Coca Cola Amatil (CCL AU)‘s Scheme of Arrangement and will be implemented at the close of trading on 21 April.

FTSE and MSCI have also announced the deletion of Coca Cola Amatil (CCL AU) from the FTSE All-World and MSCI Standard indices with effect from the close of trading on 21 April.

The data cutoff period for the next scheduled review of the S&P/ASX 200 (AS51 INDEX) in June ends on 28 May. S&P DJI will announce the changes on 11 June and the changes will be effective after the close on 18 June.

We see two potential changes currently with Orocobre Ltd (ORE AU) and Chalice Gold Mines (CHN AU) replacing Resolute Mining (RSG AU) and Austal Ltd (ASB AU).

De Grey Mining (DEG AU) is a close add and Perenti Global (PRN AU) is a close delete.


Index Rebalance & ETF Flow Recap: GPFG, KBANK, CSI300, Adani, NIFTY50, Taiwan50, ASX200

By Brian Freitas

In this weeks recap, we look at:

There were large inflows into China focused ETFs with SSE50 Index (SSE50 INDEX) and Shanghai Shenzhen CSI 300 Index (SHSZ300 INDEX) linked funds taking in the most inflows.

Events this week

Close of

Index

Detail

19 April
FTSE GEIS

Increase in number of shares Trip.com (TCOM US)

19 April
21 April

ThaiBev BeerCo’s Deferred IPO -Beer Comparison – Sober Up

By Zhen Zhou, Toh

On 16th April, Thai Beverage (THBEV SP) announced it had decided to defer the Proposed Spin-off Listing of BeerCo, citing uncertain market conditions and volatile outlook.

We briefly looked at BeerCo’s valuation and ThaiBev’s holdco valuation in our previous note where we pointed out that management wanted an expensive valuation for BeerCo (~US$9bn) which we thought was hard to justify. 

In this note, we will compare BeerCo to its ASEAN and regional peers and discuss the reasons for the lukewarm demand from institutional investors.


Before it’s here, it’s on Smartkarma

Most Read: Toshiba Corp, Grab, Geely Auto, Redbubble Ltd and more

By | Daily Briefs, Most Read

In today’s briefing:

  • Smartkarma Flash Webinar | Toshiba – Change Is Afoot
  • SPAC Grab … At 2x Uber
  • Geely (175.HK): New EV Model Starts New Era
  • Last Week in Event SPACE: Toshiba, Grab, Huarong, Invesco Office, Intouch, Jardines
  • ASX200 Index Rebalance: Redbubble to Replace Coca Cola Amatil; More Changes in June

Smartkarma Flash Webinar | Toshiba – Change Is Afoot

By Smartkarma Research

In this flash webinar, Travis Lundy and Mio Kato talk through the recent goings-on at Toshiba Corp (6502 JP) and what it means for investors.

The webinar will be hosted on Thursday, 15/April/2021, 4.00pm SGT/HKT.

Travis Lundy has 20+yrs experience in Asia doing alternative strategies (i.e. non-delta1 non long-only) in fixed income, equity derivatives, and activist/catalyst/event-driven and long-short equity strategies with most of that time spent managing money.

Mio Kato has over 15 years of experience looking at Japanese and Asian cyclically driven sectors. He was previously with FrontPoint Partners LP, Arrowhawk Capital Partners, and Uzabase before founding LightStream Research.


SPAC Grab … At 2x Uber

By David Blennerhassett

Priced at ~2x Uber on a forward EV/Revenue metric.

That was my immediate takeaway from Grab (0967655D SP)‘s announcement it intends to go public in the U.S. in partnership with SPAC Altimeter Growth Corp (AGC US)

The proposed transaction represents an expected equity value of US$39.55bn and EV of US$30.36bn, with cash proceeds of US$4.54bn.

In past insights on SPACs, beginning with Virtual IPOs/Direct Listings: Uninhibited Price Discovery, one issue for SPACs is their overabundance in the market today, targeting popular private companies. As such, popular private companies can tee up “SPAC-offs,” where various SPACs pitch their deal, competing (mostly) on price.  The higher the acquisition price, the lower the future return for SPAC investors.

And Grab has competition. Its main rival is Indonesia’s Gojek (1379371D IJ), and the two courted each other around February last year before irreconcilable differences led to them parting ways in January this year.

There is talk Gojek will merge with e-commerce payer Tokopedia and similarly seek a US listing.

Mobile gaming and online shopping platform player Sea Ltd (SE US) is also in the mix, and currently boasts a non-insignificant market cap of US$125bn.

The merger is slated for closing in July this year.

More below the fold.


Geely (175.HK): New EV Model Starts New Era

By Victoria Li

Launched on April 15th, Geely’s highly anticipated EV model, Zeekr 001, beat market expectations by offering reasonable prices and attractive features.

Market feedback shows that it’s gaining interest from potential buyers who initially target to NIO, Xpeng, BYD Han and Tesla. Please see the details in the note. As a result, it’s very likely that Zeekr 001 would become one of the most popular local brand EV models in China market.

We believe Geely’s valuation re-rating would be triggered. Compared to BYD which trades at 75.8x P/E 2021E due to market’s preference on BYD’s EV future, Geely trades at 18.7x P/E 2021E based on Bloomberg consensus.

Furthermore, Geely and its parent company are seeking for IPO opportunities for Lotus and Zeekr (owned by Geely), and Polestar and Volvo Car (owned by Geely’s parent company). These could become Geely’s valuation re-rating triggers as well.


Last Week in Event SPACE: Toshiba, Grab, Huarong, Invesco Office, Intouch, Jardines

By David Blennerhassett

Last Week in Event SPACE

  • The King Is Dead, Long Live the King: Toshiba Corp (6502 JP) announces Kurumatani-san is out and Tsunakawa-san is in.
  • Plus, other events, CCASS movements, and Mood Spins.

(This insight covers specific insights & comments involving Stubs, Pairs, Arbitrage, share Classifications, and Events – or SPACE – in the past week)

M&A – ASIA

Toshiba Corp (6502 JP) (Mkt Cap: $19bn; Liquidity: $170mn)

Toshiba’s board supported Kurumatani-san, and has supported his lack of progress and capital plans. It has supported a certain lack of transparency. It supported Kurumatani-san’s objections to the new investigation. But if shareholders don’t trust Kurumatani-san, or the Board’s support of him, and a majority of the senior-most executives distrust the CEO too, then they must distrust the influence he has had on the Board. This cannot be good for the Board and the combination of shareholder activism and senior executive opinion has to be seen as something which could trigger dramatic change. and sure enough, Kurumatani-san is shown the door.

  • The Trade is still to be long. If a PE deal goes through, it should go through well north of ¥5,000/share. While a PE deal seems difficult because of national security concerns, they should be allayed with the right structure and funding. CVC’s talk about involving JIC and DBJ to support funding could lay out a model for KKR and Brookfield  – both rumoured to be kicking tires – to follow.  Fundamentally, there is upside to good execution and good governance. Multiples could definitely rise to match those of rivals which would get the stock well into the ¥6xxx handle. We have multiple private equity funds looking. While a ¥6xxx handle was noted in the press earlier this week, a ¥7xxx handle is appropriate if Kioxia is still part of the asset base being bought. 
  • METI’s involvement in Toshiba’s downfall, while bad, is now overshadowed by METI’s involvement in what are now governance issues. It may be that METI itself would rather see the company taken over and everything cleaned up behind the curtain of private ownership rather than have it play out with public, activist ownership.
  • As Mio Kato has noted repeatedly, the Toshiba Next Plan is not going badly at all. The track Toshiba is on is decent, and if it plays out with better capital allocation that would be all to the good. There is a Kioxia monetisation to wait for. If Coinbase which earns much less than Kioxia as an avatar of technology and the lower cost of fintech disruption of traditional markets can list at US$100bn, then there is money to buy the maker of a scarce commodity.
  • In addition, there is STILL a buy of 15,000,000 shares to complete the TOPIX upweight at the close of 28 April.  If you think that the significant large activists in the stock now will not be sellers because push is coming to shove and they won’t sell before the conclusion, that means the actual float willing to sell is quite a bit smaller than people think it is.

Links to:
Travis Lundy‘s insights: Gaming Out a CVC Bid for Toshiba – The Right Noises, The Wrong Price, and Toast & Toshiba – The King Is Dead, Long Live the King
Mio’s insight: Toshiba – How the Kurumatani Resignation and KKR or Brookfield Bids Could Change Things
David Lepper‘s insight: Toshiba Corp (6502 JP) Chapter 1: CEO Out, Activists up the Game

Invesco Office J Reit (3298 JP)  (Mkt Cap: $1.7bn; Liquidity: $14mn)

Invesco announced that it was asking Starwood Capital Group for an extension of their Tender Offer (launched a week ago) to 60 days. The “problem” is that Starwood is planning on squeezing out minorities in such a way as to not grant them appraisal rights. The concerns are that the squeeze-out will be carried out through procedures that do not give dissenting unitholders an opportunity to express their objections; and that a Mandatory Squeeze-Out is not Anticipated under the Investment Trust Act. The Investment Trust Act does not afford unitholders protections enjoyed by shareholders under the Companies Law, and METI Fair M&A Guidelines are not followed in this case. 

  • The request for an extension is made. It is not, to Travis’ knowledge, absolutely required that the Bidder honour the request for the full 60 days, but he would expect an extension of a certain length. 
  • This is DEFINITELY not a done deal for Starwood. It would make more sense for Invesco J-REIT holders to sell their shares at an uplift in return for shares in another REIT. Travis still thinks Ichigo Office Reit Investment (8975 JP) is the most likely candidate. 
  • Travis would be happy being long here for the short-term, but longer-term, there is a non-negligible possibility that this doesn’t get past the minimum tendering threshold.  At ¥20,840, the shares are 2% through Terms + Dividend. This is somewhat strong for a low-volatility asset in Japan – especially one in uncharted waters. At the end, there could be a game of chicken played between a buyer or buyers and the Bidder.

(link to Travis’ insight: Invesco Office J-REIT Responds to Starwood’s Hostile Offer)

Jardine Matheson Holdings (JM SP) (Mkt Cap: $23bn; Liquidity: $23mn)

The vote at Jardine Strategic Holdings (JS SP)‘s special general meeting was a foregone conclusion. The resolution as set out in the Notice of Special General Meeting contained in the Circular to shareholders on 18 March 2021 was duly passed. 92% of shareholders voted for the resolution. I understand 966.563mn shares voted FOR the resolution, 85.549mn AGAINST, and 55.282mn did nothing. So the turnout was 95%.  Turnout ex-Matheson was ~70%. The maximum dissension is 7.8% of shares out.

  • Collapsing the circularity and removing its quirky complexity may continue to drive interest (from LOs) in Matheson, especially with certain listcos (MAND, HKL, JCNC) trading cheapish.
  • Yet a 14% discount is not particularly attractive for a vast holding company structure. Plus the governance-lacking aspects of the UK’s Standard listing have been laid bare. A derisory offer for Matheson down the track is a real possibility. 

Mainstream Group Holdings Ltd (MAI AU)  (Mkt Cap: $0.2bn; Liquidity: <$1mn)

On 9th March 2021, Australia-based third-party fund administration services provider Mainstream announced they had signed a Scheme Implementation Deed to be acquired by Hong Kong-headquartered Vistra in an all-cash deal that valued the company at a market cap of ~A$170mn. The Offer Price was A$1.20 per share.  MAI has now announced that they had received a superior bid from US-based financial technology company Ss&C Technologies (SSNC US) at an Offer Price of A$2.00/share. 

  • SS&C’s proposal requires the Vistra Scheme Implementation Deed (SID) to be terminated. MAI has notified Vistra about SS&C’s proposal and Vistra has until 16th April 2021 to respond.  Vistra has a matching right and they can decide to match or overbid. If Vistra decide not to exercise their matching right but decide to exercise their call option deeds that Vistra entered into with entities controlled by MAI directors, they will have to vote all shares it received in favour of SS&C’s proposal. Vistra will hold approximately 19.9% as a result of this transaction. 
  • SS&C’s proposal translates to a FY21E EV/EBITDA multiple of 24.2x which is a significant improvement on the EV/EBITDA multiple of 14.2x offered by Vistra. However, it is worth remembering that MAI is a high-growth company with an expected EBITDA CAGR of 28%+ for FY21E-FY23E. If Vistra or another competitive bidder decide to overbid, this situation could become more interesting. 
  • Janaghan Jeyakumar would be long at or below the current trading price. MAI shares are currently at A$1.975 translating to a gross spread of 1.27%. According to the Indicative Timeline provided in the Official Announcement, the Deal is expected to complete in ~3 months. That translates to an annualized spread of 5.1%. In the absence of an overbid by Vistra (or another competitive bidder), Janaghan expects this Deal to complete. 

(link to Janaghan’s insight: Mainstream (MAI AU): Massive Overbid by SS&C, Now Vistra Has to Respond)

Zhejiang Cangnan Instrument (1743 HK)‘s Offer Document has been despatched with the IFA concluding the Offer price to be fair and reasonable. The EGM will take place on the 17 May and the first closing date is the 31 May. As discussed in Zhejiang Cangnan (1743 HK): H-Share Buyback, given the company’s dubious price action last year and shareholder concentration, I would normally give this stock a wide birth. But it is precisely this shareholder concentration that the Offer has an excellent chance of getting up.  Including the 90% tendering condition.

In Square Enix – CTFN Reports M&A Interest, Mio is sceptical as to the CTFN report that Square Enix Holdings (9684 JP) is the subject of M&A interest from a variety of companies. His suspicion is that there are some companies sniffing around Square Enix which would make sense because it is relatively cheap and has some great and unique assets. But he doesn’t think it is available for sale and we do think that Sony could defend it relatively easily.

The share purchase agreement entered into between Zhuhai SASAC and Di Er Ton /Digital Science & Technology, to acquire domestic shares in mobile device manufacturer Beijing Digital Telecom (6188 HK) has now completed. The MGO has subsequently been triggered. The MGO has a 50% tendering condition – attached to ALL voting rights of Beijing Capital. No irrevocables have been received to date. The Composite Document is expected to be despatched by the 16 April, at which time the Offer will be open for acceptances. Link to my insight: Beijing Digital (6188 HK): Zhuhai SASAC’s MGO On Track.

EVENTS

Grab (0967655D SP) 

The proposed transaction with Altimeter Growth Corp (AGC US) represents an expected equity value of US$39.55bn and EV of US$30.36bn, with cash proceeds of US$4.54bn. In past insights on SPACs, beginning with Virtual IPOs/Direct Listings: Uninhibited Price Discovery, one issue for SPACs is their overabundance in the market today, targeting popular private companies. As such, popular private companies can tee up “SPAC-offs,” where various SPACs pitch their deal, competing (mostly) on price.  The higher the acquisition price, the lower the future return for SPAC investors.

  • And Grab has competition. Its main rival is Indonesia’s Gojek (1379371D IJ), and the two courted each other around February last year before irreconcilable differences led to them parting ways in January this year. There is talk Gojek will merge with e-commerce payer Tokopedia and similarly seek a US listing. Mobile gaming and online shopping platform player Sea Ltd (SE US) is also in the mix, and currently boasts a non-insignificant market cap of US$125bn.
  • Pegging the various business ops – mobility, delivery – to peers, one would end up with a lower multiple than what the business is being offered at.

Links to:
Sumeet Singh‘s insight: Grab SPAC Listing – High on Ambition, Very High on Valuation
my insight:  SPAC Grab … At 2x Uber
Shifara Samsudeen‘s insight: Grab: SOTP Suggests Steep Discount to Proposed SPAC Valuation

China Huarong Asset Management (2799 HK)  (Mkt Cap: $5.1bn; Liquidity: $4mn)

Huarong was originally set up in 1999 by Beijing, in response to the Asian financial crisis,  to bail out a State-owned bank – ICBC – before listing. Rumours abound the State may resort to bailing out Huarong or risk a domino effect of losses at other (state-owned) entities which have lent to Huarong. The bailer becomes the bailee?

  • Reportedly a restructuring of Huarong, modeled on the May 2019 government-led bailout of Baoshang Bank, was proposed earlier this year, involving a takeover from a counterparty, and the PBOC opening up the spigots. Part of that plan allegedly involved recovering RMB350bn of Huarong’s outstanding bonds at around par.
  • Alternatively, Huarong is broken up into its securities, banking, trust, and futures divisions – operations deemed “good assets” worth maintaining. And divisions that boast necessary permits. Another asset manager would then step in and take over the running of Huarong as an AMC.
  • With the benefit of the restructuring of Baoshang Bank – and Anbang and Evergrowing Bank – China has developed a mature process to address a situation such as Huarong’s. A more measured de-risking approach is likely here as opposed to a less-than-optimal major debt restructuring, which may result in an unnecessary domino effect for financial companies and creditors of its RMB 350bn of liabilities.
  • I don’t have a strong opinion on Huarong’s equity here, although its P/B of 0.25x compares to its average of 0.5x since listing. But the offshore bonds look like the wrong price.
  • Reuters are now reporting that Chinese regulators have asked banks not to withhold loans to Huarong as part of support measures to stabilize its cash flow. 

(link to my insight: China Huarong Asset Management (2799 HK): This Is Manageable)

In two SCMP articles on the 7 April, PRC media tycoon Li Ruigang, Television Broadcasts (511 HK)‘s largest shareholder (via Young Lion Holdings), discussed his dissatisfaction with TVB’s performance. Unqualified voting controllers – such as Li – at general meetings of TVB are capped at 49%, however, I believe there could be major changes in the Broadcasting Ordinance.  It could be argued that even if that were the case, any reform would occur at a glacial pace – it took the Communications Authority 28 months to review TVB’s shareholding structure. But in TVB (511 HK): Small Screen Saver, I surmise that the accelerated rate at which legislature and reform are occurring in this city, a revamp, should it come, may occur quickly. TVB is very beaten up. Li has a plan, it would seem – one that fits in with CMC’s listing in a couple of years. If he is given the green light, shares will pop, if not on the economics, but at least on sentiment.

A recent internal discussion paper, authored by an executive committee member of the Bauhinia Party – pro-Beijing political party with close links to Beijing’s authorities – refers to the housing issue in Hong Kong, wherein the gap between the rich and poor is widening, causing social unrest to the point of “threatening the security of one country“. The paper indicates the Central government has the right to coordinate the supply of land in Hong Kong. Expropriation would be in flagrant violation of Basic Law protection of private property. But the precision and speed with which legislature and reform are taking place in Hong Kong, such a possibility is all-too-believable. In Hong Kong Property Developers: Eminent Domain I canvass previous attempts to address Hong Kong’s farmland, and see Henderson Land Development (12 HK) has the most to lose from any such extraordinary measure, followed by New World Development (17 HK)

In SK Telecom Equity Spinoff Announcement: Summary, Takeaways, & Price Impact and SK Telecom Officially Announces a Spin-Off to Create a Holding Company Structure, Sanghyun Park and Douglas Kim discuss SK Telecom (017670 KS) finally announced its long-awaited decision to create a new holding company for its non-telecom related subsidiaries

STUBS

I see the discount to NAV at ~12%, versus a one-year average of 21% and a long-term average of more than 25%. By my estimate, the discount to NAV has never been narrower. And the simple ratio (Intouch/Advance) is also at an all-time extreme; with the implied stub around levels only briefly touched previously, before later retracing.

  • Gulf’s holding is problematic and breaks every guideline in corporate governance 101. Intouch is on record that Gulf’s stake in the company is “positive”, reflecting Intouch’s dividend yield and favourable business direction; yet cash outlayed of ~Bt30bn should have been distributed to Gulf shareholders as a dividend – and it is for those shareholders to decide whether to invest in Intouch, not Gulf’s management.
  • Gulf’s buying appears to be done, for now.  I did not expect Gulf to lift its stake from 5% to 10%, then again to 15%, therefore it is difficult to rule out further increases. It is now two and half months since the last stake increase.
  • I’d be shorting Intouch here and buying AIS. I think a more reasonable discount to NAV is >20%. 

M&A – US

Hollysys Automation Technology (HOLI US)  (Mkt Cap: $0.8bn; Liquidity: $5mn)

What a mess. On the 1 February a consortium including co-founder and former Hollysys CEO Baiqing Shao, Ace Funds, and Chinese PE outfit CPE Funds Management bumped its Offer for Hollysys to US$17.10 from US$15.47. Hollysys has yet to make public its opinion on the revised Offer, other than there is no need for shareholders to “take any action at this time”. But the big issue concerns the legal dispute over the beneficial ownership of the Hollysys’ shares held by Ace Lead and the beneficial ownership of the shares of Ace Lead held by Shao, Hollysys announced a legal action had commenced in the Hong Kong High Court against Shao and Ace Lead on March 9, 2021.
  • Cases are ongoing in both Hong Kong and the BVI.  I am no legal expert, and it is not clear how the validity and enforceability of this pans out as to the claims in the BVI – where Hollysys is domiciled – or the Hong Kong Court. Hollysys appears to be claiming the shares held by Ace Lead are held in trust and that Shao is simply not the beneficial owner. Hollysys has also requested that the trial of the lawsuit should take place on an expedited basis in July 2021. Don’t expect any major developments until the conclusion of this trial.
  •  I estimate forward PER/EV-to-EBITDA of 9.0x/2.8x under the indicative proposal, and a PER/EV-to-EBITDA/PBR of 13.1x/3.3x/1.1x on a trailing basis. Before factoring in the large net cash pile –  US$682mn or 88% of the current market cap. Hollysys shares appear substantially undervalued, as does the indicative Offer. 
  • I agree with CPE that the board of Hollysys should convene a shareholder meeting for its shareholders to consider and vote on the consortium’s proposal. It has a fiduciary duty to do this. But such a meeting should only take place once the legal spat has concluded. Shares are cheap here, and may drift cheaper, until a firmer timeline of the legal wrangles unfolds. I suspect CPE will continue to flame the situation with additional press releases in the interim.

On March 26, 2021, MagnaChip Semiconductor Corp (MX US) entered into an agreement to be acquired by Wise Road Capital in all-cash go-private transaction of $29/share. With the prevailing share price of $25.29 as at the close of business on April 12, 2021, the spread at ~15% offers a potentially attractive IRR of between 20% and 32% should the transaction close by the end of December or September. In MergerTalk: Magnachip Semiconductor Corp (MX US)-Wising Up To An Attractive Risk-Arb OpportunityRobert Sassoon lays out why think the spread indicates a rewarding risk-arb opportunity.

M&A – EUROPE

On 13 April, Orange SA (ORA FP) announced that its €22/share offer for Orange Belgium (OBEL BB) was final. The offer price implies 5.1x EV/21E EBITDA (below the median of peers at 5.9x, see table above) and 9.7% 21E FCF yield (source Capital IQ consensus), and 2.2% dividend yield. The market seems to think there are grounds for an improved offer, as the share price is still above the offer price. In Orange Belgium – Orange: Final Offer and Holdouts, Jesus Rodriguez Aguilar recommends buying on any dip below the offer price.

Veolia Environnement SA (VIE FP) has increased its Offer for Suez (SEV FP) from €18 per share to €20.5 per share. The improved offer represents1.5x EV/Fwd revenue, 8.1x EV/EBITDA, 27.4x Fwd P/E, and an implied EV of €25,574 mn and implied equity value of €13,103.6 mn. In Suez – Veolia: Peace Pipe, Jesus reckons this is a rock solid trade, albeit the gross spread is an unexciting 3.2% on a deal that may take up to a year from now to close. Long TP €20.5, and monitor to add on any dip.

SHARE CLASS

In Ping An A/H Premium: Nearing a Discount; Set Up for Expansion, Brian Freitas highlights Ping An A-shares Ping An Insurance Group Co Of China (601318 CH) are trading at parity versus the H-shares Ping An Insurance (H) (2318 HK), suggesting the risk/reward is skewed in favour of buying the A-shares and selling the H-shares.

INDEX REBALS

Kasikornbank PCL (KBANK TB) is included in the MSCI Standard index through its foreign line Kasikornbank PCL (KBANK/F TB) and the NVDR Kasikornbank PCL (KBANK-R TB). In Kasikornbank (KBANK TB) – Double Whammy, Brian sees a high probability of the foreign line being deleted at the upcoming May SAIR since it fails the EM Minimum Liquidity Requirement. There is also a possibility of a reduction in the Foreign Inclusion Factor (FIF) on the Non-Voting Depository Receipt (NVDR) line if the foreign room stays below 15% on the price cutoff date.

China Securities Index Co will announce the changes end May/beginning June and the changes will be effective after the close of trading on 11 June. In CSI300 Index Rebalance Preview: Recovering from the Growth Sell-Off, Brian expects 30 changes at the upcoming June 2021 index review – this is the maximum number of changes that are permitted at a single review. Estimated one-way turnover is 4.08% and will result in a one-way trade of CNY 10.8bn.

NIFTY50 Index Rebalance Preview. At more than a third of the way through the review period that runs from February to July, in NIFTY50 Index Rebalance Preview: Info Edge Could Replace IOC Brian sees one possible change to the index with Info Edge India (INFOE IN) replacing Indian Oil Corp (IOCL IN). There could be more changes if some large stocks like Adani Green Energy Ltd (ADANIGR IN) and Avenue Supermarts Ltd (DMART IN) are included in the Futures & Options (F&O) segment of the market. Vedanta Ltd (VEDL IN) does not make the cut for index inclusion following the 10% reduction in its free float following the open offer.

FTSE TWSE Taiwan 50 Index Rebalance Preview. The next quarterly rebalance will be effective after the close of trading on 18 June and the changes will be announced on 4 June. Data from close of trading on 24 May will be used to determine the list of inclusions and exclusions. Using data from the close of trading on 15 April, Brian reckons in FTSE TWSE Taiwan 50 Index Rebalance Preview: Price/Volume Surge Brings Three Potential Changes that Evergreen Marine Corp (2603 TT)AU Optronics (2409 TT), and Innolux Corp (3481 TT) will be added to the index at the June review, while the three deletions are Wiwynn Corp (6669 TT)Taishin Financial Holding (2887 TT) and Catcher Technology (2474 TT).

OTHER M&A & EVENT UPDATES

CCASS

My ongoing series flags large moves (~10%) in CCASS holdings over the past week or so, moves which are often outside normal market transactions.  These may be indicative of share pledges.  Or potential takeovers. Or simply help understand volume swings. 

Often these moves can easily be explained – the placement of new shares, rights issue, movements subsequent to a takeover, lock-up expiry, amongst others. For those mentioned below, I could not find an obvious reason for the CCASS move.   

Name

% chg

Into

Out of

Janco (8035 HK)10.00%KingswaySilverbricks
Speed Apparel (3860 HK)75.00%ElstoneOutside CCASS
Anchorstone (1592 HK)64.99%Get NiceYuzhou
Tianyun International Holdings (6836 HK) 27.00%China GalaxyOutside CCASS
K Group (8475 HK)25.02%EasyOutside CCASS
Kinetix (8606 HK)33.75%ZundiaoLee Go
Wang On (1222 HK) 32.36%UBSKingston
Sandmartin Intl Hldgs (482 HK) 25.39%SHKMorton
Source: HKEx

The following large movement(s) concern recently listed companies, and therefore are (likely) lock-up related.

Name

% chg

Into

Out of

Mediawelcome (2159 HK)51.76%CitiOutside CCASS
JHBP (Genor) (6998 HK) 11.76%St ChartOutside CCASS
Channel Micron (2115 HK)13.40%MasonOutside CCASS
Source: HKEx

ASX200 Index Rebalance: Redbubble to Replace Coca Cola Amatil; More Changes in June

By Brian Freitas

Post market close on 16 April, S&P Dow Jones Indices announced that Redbubble Ltd (RBL AU) would replace Coca Cola Amatil (CCL AU) in the S&P/ASX 200 (AS51 INDEX) following the shareholders of Amatil voting in favour of the Scheme of Arrangement pursuant to which all the shares held by independent shareholders would be acquired by Coca-Cola European Partners (CCEP US). The index change is subject to final court approval of Coca Cola Amatil (CCL AU)‘s Scheme of Arrangement and will be implemented at the close of trading on 21 April.

FTSE and MSCI have also announced the deletion of Coca Cola Amatil (CCL AU) from the FTSE All-World and MSCI Standard indices with effect from the close of trading on 21 April.

The data cutoff period for the next scheduled review of the S&P/ASX 200 (AS51 INDEX) in June ends on 28 May. S&P DJI will announce the changes on 11 June and the changes will be effective after the close on 18 June.

We see two potential changes currently with Orocobre Ltd (ORE AU) and Chalice Gold Mines (CHN AU) replacing Resolute Mining (RSG AU) and Austal Ltd (ASB AU).

De Grey Mining (DEG AU) is a close add and Perenti Global (PRN AU) is a close delete.


Before it’s here, it’s on Smartkarma

Most Read: Toshiba Corp, Grab, Square Enix Holdings, Innolux Corp and more

By | Daily Briefs, Most Read

In today’s briefing:

  • Smartkarma Flash Webinar | Toshiba – Change Is Afoot
  • Smartkarma Webinar | Investor Positioning in Emerging Markets
  • Grab: SOTP Suggests Steep Discount to Proposed SPAC Valuation
  • Square Enix – CTFN Reports M&A Interest
  • FTSE TWSE Taiwan 50 Index Rebalance Preview: Price/Volume Surge Brings Three Potential Changes

Smartkarma Flash Webinar | Toshiba – Change Is Afoot

By Smartkarma Research

In this flash webinar, Travis Lundy and Mio Kato talk through the recent goings-on at Toshiba Corp (6502 JP) and what it means for investors.

The webinar will be hosted on Thursday, 15/April/2021, 4.00pm SGT/HKT.

Travis Lundy has 20+yrs experience in Asia doing alternative strategies (i.e. non-delta1 non long-only) in fixed income, equity derivatives, and activist/catalyst/event-driven and long-short equity strategies with most of that time spent managing money.

Mio Kato has over 15 years of experience looking at Japanese and Asian cyclically driven sectors. He was previously with FrontPoint Partners LP, Arrowhawk Capital Partners, and Uzabase before founding LightStream Research.


Smartkarma Webinar | Investor Positioning in Emerging Markets

By Smartkarma Research

On our next Webinar, we welcome Insight Provider Steven Holden for a general analysis of fund positioning across countries/sectors and stocks, to highlight under-owned and over-owned areas of the market using Steven’s unique data-driven approach.

The webinar will be hosted on Wednesday, 21 April 2021, 17:00 SGT/HKT.

Steven Holden is the CEO and Founder of Copley Fund Research, an independent provider of research on equity fund positioning and performance. Set up in 2014, Copley focuses on global, global EM, US, Asia Ex-Japan and China active equity funds, covering over US$4 trillion in assets across 1,300 active managers.


Grab: SOTP Suggests Steep Discount to Proposed SPAC Valuation

By Shifara Samsudeen, ACMA, CGMA

The ride-hailing giant Grab (0967655D SP) announced on Tuesday (13th April 2021) that it plans to go public in the US via a SPAC merger with Altimeter Growth Corp (AGC US)  at a proposed valuation (pro-forma) of approx. US$39.6bn.

In our previous insight on Grab’s SPAC deal, we discussed the company’s growth prospects and its financials. In this insight, we examine the company’s valuation using a SOTP.


Square Enix – CTFN Reports M&A Interest

By Mio Kato

Square Enix is up 13% today as Bloomberg has reported that M&A Reporting company CTFN has said that Square Enix is the subject of M&A interest from a variety of companies, according to two investment banking sources.


FTSE TWSE Taiwan 50 Index Rebalance Preview: Price/Volume Surge Brings Three Potential Changes

By Brian Freitas

The FTSE TWSE Taiwan 50 Index is a market cap weighted index adjusted for free float and Foreign Ownership Limits and is designed to represent the performance of 50 of the largest and most liquid stocks that trade on the Taiwan stock market.

The next quarterly rebalance will be effective after the close of trading on 18 June and the changes will be announced on 4 June. Data from close of trading on 24 May will be used to determine the list of inclusions and exclusions.

Using data from the close of trading on 15 April, we see Evergreen Marine Corp (2603 TT), AU Optronics (2409 TT) and Innolux Corp (3481 TT) being added to the index at the June review, while the three deletions are Wiwynn Corp (6669 TT), Taishin Financial Holding (2887 TT) and Catcher Technology (2474 TT).

The estimated passive buying on the potential inclusions is very low given their high trading volumes, but the expected impact on the likely deletions is a lot higher.


Before it’s here, it’s on Smartkarma

Most Read: Toshiba Corp, Kakao Corp, Info Edge India, Invesco Office J Reit and more

By | Daily Briefs, Most Read

In today’s briefing:

  • Smartkarma Flash Webinar | Toshiba – Change Is Afoot
  • Toshiba – The King Is Dead, Long Live the King
  • Kakao Corp Placement – Selldown by Founder
  • NIFTY50 Index Rebalance Preview: Info Edge Could Replace IOC
  • Invesco Office J-REIT Responds to Starwood’s Hostile Offer

Smartkarma Flash Webinar | Toshiba – Change Is Afoot

By Smartkarma Research

In this flash webinar, Travis Lundy and Mio Kato talk through the recent goings-on at Toshiba Corp (6502 JP) and what it means for investors.

The webinar will be hosted on Thursday, 15/April/2021, 4.00pm SGT/HKT.

Travis Lundy has 20+yrs experience in Asia doing alternative strategies (i.e. non-delta1 non long-only) in fixed income, equity derivatives, and activist/catalyst/event-driven and long-short equity strategies with most of that time spent managing money.

Mio Kato has over 15 years of experience looking at Japanese and Asian cyclically driven sectors. He was previously with FrontPoint Partners LP, Arrowhawk Capital Partners, and Uzabase before founding LightStream Research.


Toshiba – The King Is Dead, Long Live the King

By Travis Lundy

That famous phrase is not internally contradictory. It announces the death of the late monarch, and announces the ascension of the new monarch to replace him. 

A flurry of articles late last night Japan time – some of them referenced in a few discussion points posted to the most recent insight Gaming Out a CVC Bid for Toshiba – The Right Noises, The Wrong Price, and Toast and others said that Kurumatani-san was going to be dismissed, or resign, at an extraordinary board meeting to be held on the 14th of April. 

The various articles were more or less revealing depending on how much the masthead represents Japan as Japan Inc would have itself represented. Articles from institutions with a more neutral/critical eye were more forthcoming about the turmoil under the surface. 

The phrases from the former were on the order of “it became inevitable that Kurumatani-san would have to resign.” The FT suggested one board member would put forth a motion to dismiss him after the CVC approach last week threw senior management into “civil war.”

Later versions suggested Kurumatani-san would himself resign at the beginning of a meeting, which would forestall an effort to boot him (The King is Dead). Toshiba’s exchange release this morning in response to press coverage all but confirms it.

If Kurumatani-san is going to fall on his sword because of the CVC conflict (and the idea that by getting CVC to bid to distract from the other things going on, he was somehow entrenching himself in ways not befitting Toshiba adherence to the spirit of the Corporate Governance Code), one would expect Fujimori-san may resign as well. 

All the stories suggest the current Chairman and former CEO Tsunakawa-san would take the reins (Long Live the King!) but despite Tsunakawa-san being on friendlier terms with some of the activists, the Board needs to find someone else. I expect there would be shareholder pressure to have that person come from without, but Toshiba is a sensitive asset and there could be considerable pressure to have that person come from within, or if from without, from within the Keidanren. I think investors need to prepare themselves for the possibility that the replacement for Tsunakawa-san may not be the CEO Toshiba needs either, but that may be jumping the gun.

The result is not dissimilar to what Mio Kato and I had suggested was inevitable, but the speed of the unwind may catch people by surprise. I expect that the news reports of the internal survey conducted by the Nomination Committee which showed a majority of senior executives distrusted Kurumatani-san will be viewed as the tipping point…

But investors should note that the results of that survey were known in March, conveyed to Kurumatani-san at end-March, and the Board knew it at end-March – before the CVC bid. The results of that survey were not enough to ask for his head at the time unless the CVC bid was well-and-truly concocted by CVC and Kurumatani-san himself as a way to maintain power. If that is the case, CVC needs to get out in front of it, by being very public in refuting that, and continuing with a bid, even if they bid to lose. 

This whole situation, as I suggested last week, is getting interestinger

And we have toast. Officially, before I even finished this piece, Toshiba is out with a press release saying Kurumatani-san is out and Tsunakawa-san is in. It’s pretty spare, but there is a news conference after the close.

NOW we look at what comes next. With KKR and Brookfield potential bids, and more details about CVC intentions overnight, it’s worth looking at structure. So there’s more below the fold.


Kakao Corp Placement – Selldown by Founder

By Zhen Zhou, Toh

Kakao’s founder, Kim Beom-Su, is looking sell about US$450m worth of shares.

 In this note, we will share our thoughts and run the deal through our ECM framework.  

We have covered earlier placements in:


NIFTY50 Index Rebalance Preview: Info Edge Could Replace IOC

By Brian Freitas

The NIFTY Index (NIFTY INDEX) is the flagship index of the National Stock Exchange of India (NSE). The index has 50 stocks and is a free float weighted market cap index. The next rebalance will be effective after the close of trading on 29 September 2021 and the announcement of the changes will be made four weeks prior to the effective date.

More than a third of the way through the review period that runs from February to July, we see one possible change to the index with Info Edge India (INFOE IN) replacing Indian Oil Corp (IOCL IN). There could be more changes if some large stocks like Adani Green Energy Ltd (ADANIGR IN) and Avenue Supermarts Ltd (DMART IN) are included in the Futures & Options (F&O) segment of the market.

Vedanta Ltd (VEDL IN) does not make the cut for index inclusion following the 10% reduction in its free float following the open offer.

Passive funds benchmarked to the NIFTY Index (NIFTY INDEX) will need to trade around 3 days of ADV on Info Edge India (INFOE IN) and Indian Oil Corp (IOCL IN). Plus there will be flow from active funds and from cash and carry baskets on the index.

Info Edge India (INFOE IN) trades at a valuation premium to its regional peers, while Indian Oil Corp (IOCL IN) trades at a discount to its domestic peers.

The big event to watch for is the potential inclusion of Adani Green Energy Ltd (ADANIGR IN) and Avenue Supermarts Ltd (DMART IN) in the F&O segment that will open the door for index inclusion.


Invesco Office J-REIT Responds to Starwood’s Hostile Offer

By Travis Lundy

Today after the close, Invesco Office J Reit (3298 JP) announced that it was asking Starwood Capital Group for an extension of their Tender Offer (launched a week ago) to 60 days, made an announcement establishing a Special Committee with appointed committee members and related consultations, and posted a Notice Concerning Statement of Opinion (Opinion Reserved) regarding the Tender Offer by Starwood Capital Group.

The Announcements

Announcement

English

(日本語)

Notice Concerning Announcement of Establishment of Special Committee, Appointment of Committee Members, and Consultation with Special Committee

👹

🤖

Notice Concerning the Request for Extending the Period of Tender Offer by Starwood Capital Group

👹

🤖

Notice concerning the Statement of Opinion (Reservation) on Tender Offer by Starwood Capital Group

👹

🤖

It’s an interesting response. It includes elements I had not expected but which are worthwhile. And the units are now trading 2.15% through Terms+Dividend.


Before it’s here, it’s on Smartkarma

Most Read: Toshiba Corp, Beijing Kingsoft Office Software-A, Grab, China Huarong Asset Management and more

By | Daily Briefs, Most Read

In today’s briefing:

  • Toshiba – The King Is Dead, Long Live the King
  • Toshiba – How the Kurumatani Resignation and KKR or Brookfield Bids Could Change Things
  • CSI300 Index Rebalance Preview: Recovering from the Growth Sell-Off
  • SPAC Grab … At 2x Uber
  • China Huarong Asset Management (2799 HK): This Is Manageable

Toshiba – The King Is Dead, Long Live the King

By Travis Lundy

That famous phrase is not internally contradictory. It announces the death of the late monarch, and announces the ascension of the new monarch to replace him. 

A flurry of articles late last night Japan time – some of them referenced in a few discussion points posted to the most recent insight Gaming Out a CVC Bid for Toshiba – The Right Noises, The Wrong Price, and Toast and others said that Kurumatani-san was going to be dismissed, or resign, at an extraordinary board meeting to be held on the 14th of April. 

The various articles were more or less revealing depending on how much the masthead represents Japan as Japan Inc would have itself represented. Articles from institutions with a more neutral/critical eye were more forthcoming about the turmoil under the surface. 

The phrases from the former were on the order of “it became inevitable that Kurumatani-san would have to resign.” The FT suggested one board member would put forth a motion to dismiss him after the CVC approach last week threw senior management into “civil war.”

Later versions suggested Kurumatani-san would himself resign at the beginning of a meeting, which would forestall an effort to boot him (The King is Dead). Toshiba’s exchange release this morning in response to press coverage all but confirms it.

If Kurumatani-san is going to fall on his sword because of the CVC conflict (and the idea that by getting CVC to bid to distract from the other things going on, he was somehow entrenching himself in ways not befitting Toshiba adherence to the spirit of the Corporate Governance Code), one would expect Fujimori-san may resign as well. 

All the stories suggest the current Chairman and former CEO Tsunakawa-san would take the reins (Long Live the King!) but despite Tsunakawa-san being on friendlier terms with some of the activists, the Board needs to find someone else. I expect there would be shareholder pressure to have that person come from without, but Toshiba is a sensitive asset and there could be considerable pressure to have that person come from within, or if from without, from within the Keidanren. I think investors need to prepare themselves for the possibility that the replacement for Tsunakawa-san may not be the CEO Toshiba needs either, but that may be jumping the gun.

The result is not dissimilar to what Mio Kato and I had suggested was inevitable, but the speed of the unwind may catch people by surprise. I expect that the news reports of the internal survey conducted by the Nomination Committee which showed a majority of senior executives distrusted Kurumatani-san will be viewed as the tipping point…

But investors should note that the results of that survey were known in March, conveyed to Kurumatani-san at end-March, and the Board knew it at end-March – before the CVC bid. The results of that survey were not enough to ask for his head at the time unless the CVC bid was well-and-truly concocted by CVC and Kurumatani-san himself as a way to maintain power. If that is the case, CVC needs to get out in front of it, by being very public in refuting that, and continuing with a bid, even if they bid to lose. 

This whole situation, as I suggested last week, is getting interestinger

And we have toast. Officially, before I even finished this piece, Toshiba is out with a press release saying Kurumatani-san is out and Tsunakawa-san is in. It’s pretty spare, but there is a news conference after the close.

NOW we look at what comes next. With KKR and Brookfield potential bids, and more details about CVC intentions overnight, it’s worth looking at structure. So there’s more below the fold.


Toshiba – How the Kurumatani Resignation and KKR or Brookfield Bids Could Change Things

By Mio Kato

The news flow cycle for Toshiba kicked up again overnight as Travis has pointed out. As Travis and I have suggested would happen, Kurumatani is out and other PE funds have started to circle. The initial reaction here should be positive given that it has been reported that KKR is contemplating a higher bid, however, the long-term outlook becomes a little more complex.


CSI300 Index Rebalance Preview: Recovering from the Growth Sell-Off

By Brian Freitas

We are nearly 95% through the review period for the June review of the Shanghai Shenzhen CSI 300 Index (SHSZ300 INDEX). With a large AUM in ETFs tracking the index, large open interest on the CFFEX listed futures, and volatile stocks, it could pay to look at the potential changes to the index.

China Securities Index Co (CSI) will announce the changes end May/beginning June and the changes will be effective after the close of trading on 11 June.

We expect 30 changes at the upcoming June 2021 index review – this is the maximum number of changes that are permitted at a single review. Estimated one-way turnover is 4.08% and will result in a one-way trade of CNY 10.8bn.

The expected inclusions have outperformed the Shanghai Shenzhen CSI 300 Index (SHSZ300 INDEX) on a year to date basis even post the momentum selloff that started in February. Buying the inclusion basket vs selling the CSI300 futures as a hedge could provide good market neutral returns over the next few weeks.


SPAC Grab … At 2x Uber

By David Blennerhassett

Priced at ~2x Uber on a forward EV/Revenue metric.

That was my immediate takeaway from Grab (0967655D SP)‘s announcement it intends to go public in the U.S. in partnership with SPAC Altimeter Growth Corp (AGC US)

The proposed transaction represents an expected equity value of US$39.55bn and EV of US$30.36bn, with cash proceeds of US$4.54bn.

In past insights on SPACs, beginning with Virtual IPOs/Direct Listings: Uninhibited Price Discovery, one issue for SPACs is their overabundance in the market today, targeting popular private companies. As such, popular private companies can tee up “SPAC-offs,” where various SPACs pitch their deal, competing (mostly) on price.  The higher the acquisition price, the lower the future return for SPAC investors.

And Grab has competition. Its main rival is Indonesia’s Gojek (1379371D IJ), and the two courted each other around February last year before irreconcilable differences led to them parting ways in January this year.

There is talk Gojek will merge with e-commerce payer Tokopedia and similarly seek a US listing.

Mobile gaming and online shopping platform player Sea Ltd (SE US) is also in the mix, and currently boasts a non-insignificant market cap of US$125bn.

The merger is slated for closing in July this year.

More below the fold.


China Huarong Asset Management (2799 HK): This Is Manageable

By David Blennerhassett

The irony.

China Huarong Asset Management (2799 HK) was originally set up in 1999 by Beijing, in response to the Asian financial crisis,  to bail out a State-owned bank – ICBC – before listing. Rumours abound the State may resort to bailing out Huarong or risk a domino effect of losses at other (state-owned) entities which have lent to Huarong.

The bailer becomes the bailee?

Huarong’s woes are not new. Its chairman, Lai Xiaomin was placed under investigation for graft in April 2018, following which he resigned for “personal reasons“. 

Shortly after, Hong Kong’s SFC froze HK$10.17bn of assets in three brokers – this amount is the loss incurred by Huarong. In the SFC’s words, a certain person “orchestrated fraudulent schemes by colluding with certain personnel of the management of a listed company [Huarong] or its subsidiaries in 2 suspicious transactions stemming from a loan facility indirectly granted to the Person by the listed company”.

Fast forward to the 29 January this year wherein Lai Xiaomin was executed in what Bloomberg (perhaps) sardonically concluded was an unusually harsh sentence for a bribery conviction. 

Huarong has been suspended since the 1 April 2021 after failing to despatch its 2020 annual report. In Hong Kong, companies are afforded three months from year-end to do so.

Huarong is not alone – at least 50 Hong Kong-listed companies have failed to report earnings on the March 31 deadline. Last year, 384 Hong Kong companies did not publish annual results by March 31, but were able to continue trading after the exchange and markets regulator relaxed the rules due to the pandemic. This year there was no such arrangement.

But Huarong has come under pressure following a commentary from Caixin Media of a possible bankruptcy. In a commentary dated on Monday, Ling Huawei, managing editor of Caixin Media and Caixin Weekly, discussed the possibility of a China Huarong bankruptcy. “As of mid-2020, Huarong had 160 billion yuan [$20 billion] in net assets, and more than 30 billion yuan in loan-loss provisions,” she wrote “Huarong needs to be thoroughly recapitalised and have the value of its nonperforming assets correctly recalculated. It needs to take a big bath.”

The yield on Huarong’s US$300mn 3.375% bond due May 2022 has blown out to 23%. 

This has all the hallmarks of the Evergrande Real Estate Group (3333 HK) situation in September last year covered by Travis Lundy in Evergrande May Be Facing a Funding Squeeze.

The equity here, as might be expected, is the riskier option if the company goes bust. Yet a systematic restructuring process is a more likely outcome here.

Creditors are also often protected but this situation will test both state support of an SOE and how keepwell agreements are treated. The offshore bonds at ~70c look interesting.


Before it’s here, it’s on Smartkarma

Most Read: Jardine Matheson Holdings, Kasikornbank PCL, Toshiba Corp, Beijing Kingsoft Office Software-A and more

By | Daily Briefs, Most Read

In today’s briefing:

  • Gaming Out a CVC Bid for Toshiba – The Right Noises, The Wrong Price, and Toast
  • Jardine Matheson: Strategic Buyout Done
  • Kasikornbank (KBANK TB) – Double Whammy
  • Toshiba Corp (6502 JP) – And so It Begins
  • CSI300 Index Rebalance Preview: Recovering from the Growth Sell-Off

Gaming Out a CVC Bid for Toshiba – The Right Noises, The Wrong Price, and Toast

By Travis Lundy

Things are heating up.

Some might say after today that Kurumatani-san is on the hot seat feeling considerably toasty.

Over the weekend, there were more noises as the Nikkei reported that Toshiba would “take the CVC bid seriously”, had set up an internal review committee to be chaired by a Vice President, and that the approvals would be expected by early summer, a Tender Offer would start in July, and if successful, Toshiba would be delisted in October. 

This morning there is a report that the large increase in position by Singapore-based (and as the Nikkei describes them “noisy shareholder” 3D Investment Partners reported in the previous insight was in fact 3D purchasing the stake from Harvard Investment Management. This is important because 3D voted against Kurumatani-san last year as director and later asked the firm to investigate vote-counting irregularities. Harvard,  with 4.7%, abstained, reportedly after former GPIF CIO Hiromichi Mizuno – champion of governance and stewardship while at GPIF and then-special advisor to METI – communicated with Harvard and voiced the possibility that if they voted against Kurumatani-san there could be a probe based on the idea that if shareholders coordinate to vote without declaring joint ownership, there can be issues (Reuters report, FT article).

Now there appears to be no issue of a Harvard abstention and clear increase in voting power for shares held by those who would challenge management (with or without Kurumatani-san) on capital and management policy, but to be clear, votes FOR are measured as a percentage of votes PLUS active abstentions. If Harvard actively abstained (rather than passively not voting), then this won’t change the support ratio (it would just change the optics). IF the 21.4mm share position moved from passive abstention to active opposition, it would have lowered the votes FOR from 57.98% to 54.46%, but Kurumatani-san would have squeaked through still. 

The entire situation is great fun. The situation of Toshiba governance has become something of a governance nightmare and with national security issues at stake for a minority of the business, a potential bureaucratic quagmire. But the company is doing decently well, and is long a desirable asset, and there are LOTS of shareholders who are heavily vested in seeing this through. And it appears with the March EGM result that they have a majority. 

Sitting in the audience, it makes me want to have a squirt gun, rubber gloves, rice, newspaper, and toast. Gotta have toast. 


Jardine Matheson: Strategic Buyout Done

By David Blennerhassett

Jardine Strategic Holdings (JS SP)‘s special general meeting (SGM) was held a short while ago in Bermuda. The vote was a foregone conclusion, given Jardine Matheson Holdings (JM SP)‘s ability to vote its 84.9% stake.

The resolution as set out in the Notice of Special General Meeting contained in the Circular to shareholders on 18 March 2021 was duly passed.

92% of shareholders voted for the resolution. It is not clear from this link if that is 92% of shareholders present and via proxy, or 92% of outstanding shares.

This is useful in knowing the level of dissension.

More below the fold.


Kasikornbank (KBANK TB) – Double Whammy

By Brian Freitas

Kasikornbank PCL (KBANK TB) is included in the MSCI Standard index through its foreign line Kasikornbank PCL (KBANK/F TB) and the NVDR Kasikornbank PCL (KBANK-R TB).

We see a high probability of the foreign line being deleted at the upcoming May SAIR since it fails the EM Minimum Liquidity Requirement. There is also a possibility of a reduction in the Foreign Inclusion Factor (FIF) on the Non Voting Depository Receipt (NVDR) line if the foreign room stays below 15% on the price cutoff date.

Deletion of the foreign line would require passive funds to sell 87m shares of Kasikornbank PCL (KBANK TB) while a reduction in the FIF on the NVDR line would necessitate selling of around 22m shares.

We expect the stock to remain under pressure relative to its peers over the next few weeks as active investors pre-positioning for the passive selling.

In this Insight, we look at the reasons for the index deletion/ weight reduction, the possible impact on the stock and the foreign premium, and trades that could perform well from now to implementation date.


Toshiba Corp (6502 JP) – And so It Begins

By David Lepper

As of last week, the Nikkei Newspaper reported The US$20 billion buyout offer for Toshiba by U.K. investment firm CVC Capital Partners. This confirmed our view that we shall see an increasing number of Private Equity Managers start to use its dry powder in more significant ways to create and lobby for corporate change, thereby assuming their activism role. We discuss valuation, the key items which must occur for traditional activists to accept this transaction as well as the chances of a competing bid amongst other items. We specifically examine why management is going to have to declare their position and interests, in the coming days to ensure a clear and efficient. Failure to do so is likely to see them out of office ahead of this transaction even having the chance to be successful.


CSI300 Index Rebalance Preview: Recovering from the Growth Sell-Off

By Brian Freitas

We are nearly 95% through the review period for the June review of the Shanghai Shenzhen CSI 300 Index (SHSZ300 INDEX). With a large AUM in ETFs tracking the index, large open interest on the CFFEX listed futures, and volatile stocks, it could pay to look at the potential changes to the index.

China Securities Index Co (CSI) will announce the changes end May/beginning June and the changes will be effective after the close of trading on 11 June.

We expect 30 changes at the upcoming June 2021 index review – this is the maximum number of changes that are permitted at a single review. Estimated one-way turnover is 4.08% and will result in a one-way trade of CNY 10.8bn.

The expected inclusions have outperformed the Shanghai Shenzhen CSI 300 Index (SHSZ300 INDEX) on a year to date basis even post the momentum selloff that started in February. Buying the inclusion basket vs selling the CSI300 futures as a hedge could provide good market neutral returns over the next few weeks.


Before it’s here, it’s on Smartkarma

Most Read: Toshiba Corp, Ping An Insurance (H), Shanghai Henlius Biotech, Jardine Matheson Holdings, Samsung Electronics and more

By | Daily Briefs, Most Read

In today’s briefing:

  • Gaming Out a CVC Bid for Toshiba – The Right Noises, The Wrong Price, and Toast
  • Ping An A/H Premium: Nearing a Discount; Set Up for Expansion
  • Norway’s GPFG Could Sell Its Smallest Holdings: Potential Impact on Asian Stocks
  • Jardine Matheson: Strategic Buyout Done
  • Samsung Special Div Payment Event on April 16: What to Expect

Gaming Out a CVC Bid for Toshiba – The Right Noises, The Wrong Price, and Toast

By Travis Lundy

Things are heating up.

Some might say after today that Kurumatani-san is on the hot seat feeling considerably toasty.

Over the weekend, there were more noises as the Nikkei reported that Toshiba would “take the CVC bid seriously”, had set up an internal review committee to be chaired by a Vice President, and that the approvals would be expected by early summer, a Tender Offer would start in July, and if successful, Toshiba would be delisted in October. 

This morning there is a report that the large increase in position by Singapore-based (and as the Nikkei describes them “noisy shareholder” 3D Investment Partners reported in the previous insight was in fact 3D purchasing the stake from Harvard Investment Management. This is important because 3D voted against Kurumatani-san last year as director and later asked the firm to investigate vote-counting irregularities. Harvard,  with 4.7%, abstained, reportedly after former GPIF CIO Hiromichi Mizuno – champion of governance and stewardship while at GPIF and then-special advisor to METI – communicated with Harvard and voiced the possibility that if they voted against Kurumatani-san there could be a probe based on the idea that if shareholders coordinate to vote without declaring joint ownership, there can be issues (Reuters report, FT article).

Now there appears to be no issue of a Harvard abstention and clear increase in voting power for shares held by those who would challenge management (with or without Kurumatani-san) on capital and management policy, but to be clear, votes FOR are measured as a percentage of votes PLUS active abstentions. If Harvard actively abstained (rather than passively not voting), then this won’t change the support ratio (it would just change the optics). IF the 21.4mm share position moved from passive abstention to active opposition, it would have lowered the votes FOR from 57.98% to 54.46%, but Kurumatani-san would have squeaked through still. 

The entire situation is great fun. The situation of Toshiba governance has become something of a governance nightmare and with national security issues at stake for a minority of the business, a potential bureaucratic quagmire. But the company is doing decently well, and is long a desirable asset, and there are LOTS of shareholders who are heavily vested in seeing this through. And it appears with the March EGM result that they have a majority. 

Sitting in the audience, it makes me want to have a squirt gun, rubber gloves, rice, newspaper, and toast. Gotta have toast. 


Ping An A/H Premium: Nearing a Discount; Set Up for Expansion

By Brian Freitas

The Ping An A-shares Ping An Insurance Group Co Of China (601318 CH) are trading at parity versus the H-shares Ping An Insurance (H) (2318 HK). This continues the cycle of premiums and discounts going back to 2015.

The last time the A-shares traded at parity to the H-shares was in July last year. Since then, the premium of A-shares to H-shares touched a high of over 16% before moving lower to trade at parity again.

With the Ping An A-shares trading at parity versus the H-shares, the risk/reward is attractive to setting up a premium expansion trade.

In this Insight, we look at the historical premium for Ping An and compare it to the premium on the AH index and other large caps, and look at some catalysts that could lead to an expansion of the premium.


Norway’s GPFG Could Sell Its Smallest Holdings: Potential Impact on Asian Stocks

By Brian Freitas

Norway’s Government Pension Fund Global (GPFG) is the largest sovereign wealth fund with assets of US$1.3 trillion and holds, on average, 1.4% of all the worlds listed companies. The fund is managed by Norges Bank Investment Management (NBIM) on behalf of Norges Bank.

The benchmark for the equities portfolio is the FTSE Global All Cap index, though the fund also holds positions in companies that are not a part of the benchmark index.

As of 31 December 2020, the fund had equity holdings in 9,123 companies. The Norwegian Government has proposed that no new emerging markets are added to the GPFG equity benchmark and has also proposed a 25-30% reduction in the number of equity holdings in the fund targeting the smallest companies in the benchmark. These proposals have to be approved by the Stortinget (the Norwegian legislature).

In this Insight, we look at the behemoth that is the GPFG, the holdings of the Fund, stocks that could be deleted from the portfolio to meet the new proposals and the impact on the stocks.


Jardine Matheson: Strategic Buyout Done

By David Blennerhassett

Jardine Strategic Holdings (JS SP)‘s special general meeting (SGM) was held a short while ago in Bermuda. The vote was a foregone conclusion, given Jardine Matheson Holdings (JM SP)‘s ability to vote its 84.9% stake.

The resolution as set out in the Notice of Special General Meeting contained in the Circular to shareholders on 18 March 2021 was duly passed.

92% of shareholders voted for the resolution. It is not clear from this link if that is 92% of shareholders present and via proxy, or 92% of outstanding shares.

This is useful in knowing the level of dissension.

More below the fold.


Samsung Special Div Payment Event on April 16: What to Expect

By Sanghyun Park

Samsung’s huge special dividend (+ quarterly div) for FY2020 comes on April 16.

Special dividendOrd1P
Div₩1,932₩1,933
– Quarterly₩354₩355
– Special₩1,578₩1,578
Payment date16/4/2116/4/21
Record date31/12/2031/12/20
Ex rights-1D28/12/2028/12/20
Source: KRX

The total div amounts to ₩13.1T: 2.31% of the Ord SO and 2.57% of the 1P SO.

As a % of DTV, it is 7.6x for Ord and 13.6x for 1P.

Out of ₩13.1T, ₩7.7T (59%) will be going to the foreign shareholders.

Special dividendOrd1P
SO5,969,782,550822,886,700
Total div (₩B)11,533.61,590.6
% of MC2.31%2.58%
% of DTV758.93%1357.75%
FO55.82%82.04%
FO shares3,332,143,450675,105,949
Total div for FO (₩B)6,437.71,305.0
% of MC1.29%2.11%
Source: KRX

Before it’s here, it’s on Smartkarma

Most Read: Ping An Insurance (H), Alibaba Group, iSharesGlobal Clean Energy ETF and more

By | Daily Briefs, Most Read

In today’s briefing:

  • Ping An A/H Premium: Nearing a Discount; Set Up for Expansion
  • Alibaba (BABA US): Record Fine – Grin and Bear It as Better Days Are Ahead
  • Index Rebalance & ETF Flow Recap: SK IE Tech, SK Bios, FTSE June, S&P Clean Energy, STI, Tencent
  • Alibaba Fined RMB 18.2bn: May Not Be The Season Finale of Ma Vs Xi
  • Alibaba (BABA) Fine – Close, but No Cigar

Ping An A/H Premium: Nearing a Discount; Set Up for Expansion

By Brian Freitas

The Ping An A-shares Ping An Insurance Group Co Of China (601318 CH) are trading at parity versus the H-shares Ping An Insurance (H) (2318 HK). This continues the cycle of premiums and discounts going back to 2015.

The last time the A-shares traded at parity to the H-shares was in July last year. Since then, the premium of A-shares to H-shares touched a high of over 16% before moving lower to trade at parity again.

With the Ping An A-shares trading at parity versus the H-shares, the risk/reward is attractive to setting up a premium expansion trade.

In this Insight, we look at the historical premium for Ping An and compare it to the premium on the AH index and other large caps, and look at some catalysts that could lead to an expansion of the premium.


Alibaba (BABA US): Record Fine – Grin and Bear It as Better Days Are Ahead

By Mitchell Kim

Chinese regulators announced a record fine for Alibaba Group (BABA US) amounting to USD2.75 billion for violations related to antitrust regulations.  While the final amount for the fine was previously unknown, the fine itself is not a surprise.  

We believe this is a positive outcome for Alibaba: 

  1. We did not see any hint of additional rectifications related to AML (Anti-monopoly law) other than the penalty amount. (Alibaba has already pledged to modify its “exclusivity” practice to allow for merchants to have greater freedom to list their products on multiple platforms. Share overhang related to this issue should dissipate. 
  2. Alibaba could have been penalized more severely (as much as 10% of its revenues for antitrust violations).  The penalty amount represents only about 3.5% of Alibaba’s FY20 revenues (4% of CY2019 revenues).
  3. The lower-than-expected fine amount appears to signal that the regulators are not trying to excessively debilitate the industry.  

We have highlighted the AML and the consumer lending regulation risks to be key share overhang on the BABA shares in our February report, Alibaba (BABA US): Ant Group Woes Overly Priced-In.   We believe BABA shares are undervalued due to the overhang.  The latest regulatory announcement signals the lifting of share overhang related to AML, in our view.  


Index Rebalance & ETF Flow Recap: SK IE Tech, SK Bios, FTSE June, S&P Clean Energy, STI, Tencent

By Brian Freitas

In this weeks recap, we look at:

In the ETF space, the largest inflows went into Nikkei 225 (NKY INDEX) linked ETFs while most of the ETFs with outflows were indexed to the Tokyo Stock Exchange Tokyo Price Index Topix (TPX INDEX).

Events this week

Close of

Index

Detail

12 April
FTSE AW/ FTSE China 50
Tencent Holdings (700 HK) Investability Weight increase
12 April
STI
16 April
S&P Global Clean Energy

Alibaba Fined RMB 18.2bn: May Not Be The Season Finale of Ma Vs Xi

By Oshadhi Kumarasiri

Alibaba Group (9988 HK) has come under intense scrutiny from Chinese regulators since Jack Ma’s public criticism of China’s regulatory systems. The latest episode of Jack Ma Vs Xi & The Communist Party ended yesterday with The State Administration for Market Regulation (SAMR) imposing a fine of RMB 18.2bn for violating anti-monopoly rules.


Alibaba (BABA) Fine – Close, but No Cigar

By Victor Galliano

  • SAMR’s RMB18.2bn fine for abuse of market dominance could potentially be seen as a watershed marking that the worst of regulatory risk is past
  • In terms of Alibaba’s relative share performance, since the start of November 2020, it has clearly underperformed Tencent as well as Meituan and Pinduoduo
  • Relative to these peers, Alibaba Group (BABA US) trades at a discount on the core valuation metrics; versus its closest competitor Tencent Holdings (700 HK) , Alibaba trades at a 28% discount to 2022E PE multiple and at a 21% discount to 2022E EV/EBITDA ratio
  • Nonetheless, in terms of long term growth potential, Alibaba’s PEG ratio discount of 5% to Tencent is low
  • In our view, Alibaba’s outlook, especially relating to regulatory risks, remain unclear, especially with regard to the future of Ant Financial Services Group (6688 HK), its value and its potential IPO
  • Risks to our bearish view on Alibaba include a better than expected performance versus its core competitors and a fast resolution to regulatory risks with SAMR

Before it’s here, it’s on Smartkarma

Most Read: Toshiba Corp, Samsung Electronics, HYBE and more

By | Daily Briefs, Most Read

In today’s briefing:

  • Toshiba – Tsunakawa’s Reappointment as EO Is Probably the End for Kurumatani
  • Korea NPS Local Equity Weight Change: Stocks to Be Affected
  • HYBE (Big Hit Ent) Rights Offer Presents a Nice Setup for a Classic Arb Trade
  • Asia Short Interest: Baidu, Kuaishou, Smoore, Yaskawa, BASE, Toshiba, Celltrion, Samsung, Largan
  • NPS Raises Domestic Equity Allocations

Toshiba – Tsunakawa’s Reappointment as EO Is Probably the End for Kurumatani

By Mio Kato

Toshiba was down 5.4% today after its board chair downplayed the possibility of any quick decision on CVC’s preliminary, non-binding offer. It is now down 11.2% from the ¥4,805 high yesterday and is 14.7% below the indicative bid price of ¥5,000 suggesting limited confidence in a bid actually going through. This is not necessarily wrong, but there is much to consider here and some of Toshiba’s moves here are interesting.


Korea NPS Local Equity Weight Change: Stocks to Be Affected

By Sanghyun Park

The Korea NPS made it official that it would increase the SAA tolerable band from ±2.0%p to ±3.0%p but reducing the TAA to ±2.0%p to keep the overall tolerable band at ±5.0%p.

SAA & TAA tolerable bandsSAA (strategic asset allocation)TAA (tactical asset allocation)
Domestic bonds±3.5%p±5.0%p
Overseas bonds±0.5%p±1.0%p
Domestic stocks±3.0%p±2.0%p
Overseas stocks±1.0%p±1.0%p
Alternative±1.2%p±1.2%p
Source: Korea NPS

As of January this year, the actual weight is 21%, 4.2% over the target of 16.8%.

NPS local equity weightFY2020 yearendFY2021 Jan
Target17.30%16.80%
Actual21.20%21.00%
– Excess %3.90%4.20%
Source: SED

It was under SAA ±2.0%p and TAA ±3.0%p.

Assuming the SAA ±2.0%p being filled up, the TAA was filled up at 73% (2.2%p of the 3%p limit).

Now with the SAA extended up to 3%p, 73% of the 2%p room comes at 1.5%p.

Assuming the SAA is filled up and the TAA still stays at the same 73%, the NPS can raise the local equity weight by 0.3%p, which translates into ₩0.5T worth of immediately available funds for additional local equity buying.

* The local equity holding totaled ₩180T as of Jan 2021. The NPS owns 6.95% of KOSPI and KOSDAQ combined and 8.24% of KOSPI.

(₩T) – as of Jan 2021AmountWeight
Total assets855.3100.00%
Financial investment854.199.90%
Domestic equity180.021.00%
Overseas equity201.323.50%
Domestic bonds330.938.70%
Overseas bonds47.65.60%
Alternative92.210.80%
Short-term liquidity2.10.20%
Other1.00.10%
Source: Korea NPS
(₩T)KOSPIKOSDAQ
Number of companies8051,496
Number of constituents9231,499
Market cap2,183.4405.1
Combined2,588.5
Korea NPS-owned local equity180.0
– % of the combined KOSPI and KOSDAQ6.95%
– % of KOSPI8.24%
Source: KRX

HYBE (Big Hit Ent) Rights Offer Presents a Nice Setup for a Classic Arb Trade

By Sanghyun Park

As a part of the mega acquisition deal, HYBE proceeds with an offering of its own.

The company will offer 2.2 M shares for ₩440B at a capital increase of 6.25% and a shareholding dilution of 5.89%.

It is a 100% stockholder allocation at a per-share allocation of 0.0625383.

Overview
IssuerHYBE (Big Hit Entertainment Co Ltd)
Ticker352820
TargetA public offering of forfeited shares after offering to stockholders
TransferabilityRenounceable
Volume2,227,848
Bonus issue volume0
Preliminary price₩197,500
Preliminary value₩439,999,980,000
Oversubscription privilege20.00%
BankerNH
– Underwriting typeStandby
Source: DART
Allocation
Common35,623,760
Pref (incl. RCPS & CPS)0
Total shares35,623,760
Treasury shares0
Total shares ex treasury shares35,623,760
Offer volume2,227,848
– Common2,227,848
– Pref0
Per-share allocation0.0625383
Capital increase6.25%
Dilution5.89%
Total shares after rights offer37,851,608
– Common37,851,608
– Pref0
ESOP allocation0
– %0.00%
Stockholder allocation2,227,848
– %100.00%
Source: DART

The discount rate is set at 15%, more aggressive than the usual 20%.

Pricing
1st roundRP × (1 – 15%) / [1 + (6.25% × 15%)]
– Reference price (RP)Min [1D VWAP, Avg (1D VWAP, 1W VWAP, 1M VWAP)]
– Reference date2021. 4. 14
Ex-rights base price[RP + (1st × 6.25%)] / (1 + 6.25%)
– Reference price (RP)Previous close
– Reference date2021. 4. 16
2nd roundRP × (1 – 15%)
– Reference price (RP)Min [1D VWAP, Avg (1D VWAP, 1W VWAP)]
– Reference date2021. 5. 27
FinalMax [Min (1st, 2nd), 3D VWAP × 60%]
– Reference date2021. 5. 27
Discount rate15.00%
Capital increase rate6.25%
Source: DART

April 14 is the first-round pricing, followed by the ex-rights on April 16. Subscription rights trading is May 6~12. Then we have the final pricing on June 1.

The subscription is June 1, and the payment will be June 9. The new shares will get listed on June 22.  

Timetable
BOD meeting2021. 4. 2
Preliminary pricing2021. 4. 14
Ex-rights date2021. 4. 16
Record date2021. 4. 19
Subscription rights trade beginning2021. 5. 6
Subscription rights trade ending2021. 5. 12
Final pricing2021. 5. 27
Stockholder subscription2021. 6. 1
Public subscription2021. 6. 4
Payment2021. 6. 9
Listing2021. 6. 22
Source: DART

Asia Short Interest: Baidu, Kuaishou, Smoore, Yaskawa, BASE, Toshiba, Celltrion, Samsung, Largan

By Brian Freitas

The Asia Short Interest weekly looks at moves in market wide short interest and highlights movements in stock specific short interest across Hong Kong, Japan, Korea and Taiwan using the last available data published by the relevant authorities.

For the week from 22-26 March, Hong Kong saw shorts rise on Baidu (9888 HK), Tencent Holdings (700 HK), Yihai Int’L Holding (1579 HK), Kuaishou Technology (1024 HK) and Lenovo (992 HK) while there was short covering on Meituan (3690 HK), Sino Biopharmaceutical (1177 HK), Haier Smart Home Co Ltd (6690 HK), JD.com Inc. (9618 HK) and China Literature (772 HK). Shorts increased in the Communication Services, Financials, Information Technology and Consumer Discretionary sectors.

In Japan, stocks that saw the most shorts were Yaskawa Electric (6506 JP), BASE Inc (4477 JP), Toshiba Corp (6502 JP), Aeon Co Ltd (8267 JP) and Peptidream Inc (4587 JP) while shorts decreased on Takeda Pharmaceutical (4502 JP), Monex Group Inc (8698 JP), Pan Pacific International Holdings (7532 JP), Nexon (3659 JP) and Mizuho Financial Group (8411 JP). Shorts increased in the Industrials sectors, and decreased in the Financials, Communication Services and Health Care sectors.


NPS Raises Domestic Equity Allocations

By Douglas Kim

On 9 April, the NPS announced that it will change rules to increase the allocation of Korean stocks, which would be the first time in a decade. This adjustment could be implemented starting next week. This change comes after a lot of pressure by the retail investors.

NPS increased the strategic asset allocation (SAA) limit for domestic equities from the current 2% to 3%, increasing the percentage of Korean stocks it can hold from the current band of 14.8% -18.8% (+/- 2% with 16.8% as base) to 13.8% -19.8% (+/- 3% with 16.8% as base). NPS’s target of the domestic equity allocation is 16.8% (of total fund amount). As a result of this change, the sale of domestic stocks by the NPS is expected to slow down.


Before it’s here, it’s on Smartkarma

Most Read: Kakao Corp, Toshiba Corp, Niit Ltd, Grab, SK IE Technology and more

By | Daily Briefs, Most Read

In today’s briefing:

  • Korea Short Sell Ban Ending Soon – Flows & Potential Trades
  • Toshiba – Tsunakawa’s Reappointment as EO Is Probably the End for Kurumatani
  • NIIT Limited Buyback – If You Own (Active Or Passive), You Should Read
  • Grab – Biting the Bullet with a SPAC Listing?
  • SK IET Valuation Analysis

Korea Short Sell Ban Ending Soon – Flows & Potential Trades

By Brian Freitas

The short-sell ban in Korea that has been in place for over a year is set to end on 2 May. Constituent stocks of the Korea Stock Exchange Kospi 200 Index (KOSPI2 INDEX) and KOSDAQ 150 Index (KOSDQ150 INDEX) can be short sold starting 3 May. The Financial Services Commission will make a decision on the other stocks at a later time depending on market conditions.

Short notional has plummeted over the last year as the market has moved higher. Retail investors have been net buyers of Korean equities offsetting the selling by foreign investors, pension funds and other investors.

Foreign investors holding of Korean equities dropped from 35% in March 2020 to 30.5% in September 2020, though that number has since increased to 32.1%. Foreigner investors have been buyers of LG Chem Ltd (051910 KS), Kakao Corp (035720 KS), SK Biopharmaceuticals Co Ltd (326030 KS), Samsung Electro Mechanics Co, Ltd. (009150 KS), Celltrion Inc (068270 KS) and HYBE (352820 KS) and sellers on Samsung Electronics (005930 KS), Samsung Electronics Pref Shares (005935 KS), Hyundai Motor Co (005380 KS), SK Innovation (096770 KS), Hyundai Mobis (012330 KS) and Kia Motors Corp (000270 KS).

With the review period for the next rebalance of the Korea Stock Exchange Kospi 200 Index (KOSPI2 INDEX), KOSDAQ 150 Index (KOSDQ150 INDEX) and MSCI indices ending on 30 April, the resumption of short selling on the next trading day could see short selling of potential deletions from these indices. Unwinding existing long positions and pre-positioning for selling could be a good trade.

There are also interesting opportunities on preferred vs ordinary trades and we highlight a few names that are trading near their widest discount ever. We recommend pre-positioning for a shrinking of the discount on these names.


Toshiba – Tsunakawa’s Reappointment as EO Is Probably the End for Kurumatani

By Mio Kato

Toshiba was down 5.4% today after its board chair downplayed the possibility of any quick decision on CVC’s preliminary, non-binding offer. It is now down 11.2% from the ¥4,805 high yesterday and is 14.7% below the indicative bid price of ¥5,000 suggesting limited confidence in a bid actually going through. This is not necessarily wrong, but there is much to consider here and some of Toshiba’s moves here are interesting.


NIIT Limited Buyback – If You Own (Active Or Passive), You Should Read

By Travis Lundy

Rarely do I write a title like this. I think it is my first one. But I think it is worthwhile.

In late December 2020, the Board of NIIT Ltd (NIIT IN) met to approve a proposal for a Share Buyback. A Postal Ballot followed and was passed. On 15 February the Public Announcement was made with a Record Date of 24 February. The Buyback was set to open on 12 April 2021 and end on 28 April 2021. 

On 5 April 2021, we got the Letter of Offer.

If you own the stock, in an active or passive portfolio, you should consider the parameters and the possibilities.


Grab – Biting the Bullet with a SPAC Listing?

By Angus Mackintosh

It looks increasingly likely that Grab (0967655D SP) will bite the bullet and forge ahead with a SPAC listing through Altimeter Capital, with a slated valuation of US$35bn, making it the first South-East Asian Unicorn to list apart from Sea Ltd (SE US) of course. This would be the largest SPAC listing to date. 

Grab (0967655D SP)‘s apparent rush to market probably comes with active encouragement from Softbank after its failed attempt to merge with competitor Gojek (1379371D IJ).

Grab (0967655D SP) is looking increasingly vulnerable since the announcement that Gojek will merge with Tokopedia PT (1087142D IJ), creating a much more formidable rival with a strong e-commerce business and a lead in digital payments and finance.

The recent entry of ShopeeFood into the food delivery space in Indonesia is also more of a threat to Grab versus Gojek, given the discounts and free deliveries ShopeeFood is offering. 

Using available public information and peer group we look at whether these valuations can be justified for the Grab SPAC listing. 


SK IET Valuation Analysis

By Douglas Kim

Our base case valuation of SK IET is 143,413 won, which represents a 37% upside from the high end of the IPO price range of 105,000 won. Our sensitivity analysis suggests a valuation range of 95,590 won to 201,864 won. To value SK IET, we used EV/EBITDA valuation method, using our base case 2021 EBITDA estimate of 242 billion won and applied a 39.1x EV/EBITDA multiple.

This valuation multiple is 20% premium to the the average EV/EBITDA multiple of the comps in 2021. We believe this 20% premium multiple to the peers is reasonable for SK IET mainly due to the company’s higher EBITDA margins and ROE than the comps. 

We forecast SK IE Technology (SKIET KS) to generate sales of 617.1 billion won (up 31.5% YoY) an operating profit of 163.6 billion won (up 30.7% YoY) in 2021. From 2020 to 2025, we estimate the company’s sales to increase at a CAGR of 28%.

The book building for the SK IET starts on 22 April and it will start trading on 11 May. 

Overall, we have a positive view of the SK IET IPO. However, we would caution investors on having too high of expectations for the IPO similar to SK Bioscience, Kakao Games, or SK Biopharm as we believe that the overall upside for the SK IET is likely to be much lower than these other major Korean IPOs in the past year. 


Before it’s here, it’s on Smartkarma